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Lawsons Case

In: Business and Management

Submitted By jetta91
Words 1462
Pages 6
Executive Summary
Problem Statement

Mr. Paul Mackay, a sole proprietor, has approached the Commercial Bank of Ontario in order to obtain an additional $194,000 bank loan and a $26,000 line of credit. Paul owns and operates a general merchandising retailer in Riverdale, Ontario named Lawsons’. The bank loan is needed for Mr. Mackay to reduce his trade debt that has a sheer 13.5 per cent interest penalty. The line of credit is needed for sales seasonal downfalls so that Mr. Mackay could properly manage those tough months. Jackie Patrick, a first time loans officer, has been appointed to Mr. Mackay’s request. Although anxious to finish her first loan, Ms. Patrick knows that this particular case is a difficult one.
Analysis
Sub problems/Issues In order to start up his business, Mr. Mackay secured a $50,000 long-term loan from the Commercial Bank of Ontario. The bank loan was secured by all company assets and a guarantee from Lawsons’ supplier Forsyth Wholesale Ltd (FWL). Although since then, Lawson has produced positive earnings each year, but after drawings, equity has decreased each year as well. This is a good indication that the problem may be the management and its absence of understanding business operations. Another issue regarding the request is the fact that it is Ms. Patrick’s first bank loan. As it indicates that it is her first day on the job and is anxious to come to a decision. Supervision from her superiors along the way would be beneficial on such a complicated bank loan request.
Increasing Trade Debt
Mr. Mackay needs the bank loan primarily to get him out of paying steep interest charges of 13.5 per cent on his trade debt from FWL. Mr. Mackay knows that obtaining the bank loan would result in lower interest payments and therefore higher profitability to aide in turning the business around.
Ratio Analysis
Profitability...

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